Robinhood'' s Most significant Service More Than Tripled in the First Quarter
< img src=" https://images.wsj.net/im-332976/social "class=" ff-og-image-inserted"/ > The stock-trading mania of early 2021 raised income at Robinhood Markets Inc. to new heights.
When its consumers buy and sell stocks and alternatives, Robinhood paths those orders to high-speed traders, which pay the start-up brokerage for the right to execute a number of those trades. That business, referred to as payment for order circulation, produced about $331 million in income for Robinhood in the first quarter, according to a securities filing late last week. That is more than triple the $91 million Robinhood generated from payment for order flow in the first quarter of 2020.
Millions of amateur investors downloaded Robinhood’s app in the first quarter, drawn in by the run-up in meme stocks popular on Reddit’s WallStreetBets forum. Such fast development in users and earnings is likely to attract potential financiers in Robinhood’s coming preliminary public offering, among the most eagerly awaited listings of the year. The strength of its business up until January prompted brand-new and current investors to pump a whopping $3.4 billion into the company just 3 months back.
Robinhood needed that capital infusion to keep supporting the Reddit-fueled market rally. After the clearinghouse that helped finish Robinhood’s trades asked it to post billions of dollars in extra collateral that it didn’t have on hand, Robinhood restricted users’ capability to purchase shares in GameStop Corp. and other highflying stocks at the end of January.
That decision generated ratings of client problems, lots of lawsuits against Robinhood and a social-media campaign to erase the app around the start of February. But those patterns didn’t wind up denting Robinhood’s service. February earnings from payments for order flow at Robinhood amounted to about $121 million, or nearly 7% more than what it made in January.
Robinhood has other sources of profits, including a membership service called Robinhood Gold and fees it collects providing out customer shares to short sellers, but payment for order flow is the largest. The practice has actually been controversial for several years, with critics arguing that it encourages brokerages to maximize their income at the expenditure of customers.
Last year, Robinhood accepted pay a $65 million settlement to the Securities and Exchange Commission for misleading customers for years about its dependence on those offers. Robinhood didn’t admit misbehavior.
In March, a SEC official told legislators that the firm is considering whether it needed to examine payment-for-order-flow plans.
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